This has been a weird week in global markets, but even weirder thanks to massive intervention by Those in Command. The Shanghai market, after who knows how much spending by the national team and its proxies, ended the week only up a smidgen, in spite of a massive rise on Monday which was almost all lost in subsequent trading sessions. The message is clear: the market sees further declines, but it would appear that stock values are at or very close to some magic line which if crossed would kick in huge repercussions.
The problem relates to the fact that many listed companies have mostly taken loans collateralized by listed shares at a certain assumed value, meaning that they must be sold to repay the loan if a certain price point is reached. One of the clearest specific indications of the saltwater of the market came from the China Everbright asset management firm, which announced it plans to offload some of its holdings that it fears will only deteriorate in value in the future. Global stock turmoil doesn’t help either, but those markets are falling from high levels while the Chinese stock market is falling from low to even lower. It comes down to one question: do you have faith in the party-state’s ability to hold it all up regardless of what happens? If yes, Chinese stocks are a buy. Meanwhile, the renminbi ended the week at 6.96 to the dollar, nudging up ever more insistently, it would seem, against the magic 7.
Japan’s leader Mr Abe, who the Chinese leaders would dearly love to see out of power, arrived in Beijing for the first top-level visit by a Japanese leader since 2011. The dynamics of all these relationships are shifting fast. And party chief Mr Xi opened the longest sea bridge in the world and in a long Southern Tour stressed constantly the need for self-reliance. A number of conversations we have had this week included unprompted comments about the clock being turned back, the state resuming full economic powers, the Cultural Revolution redux. One taxi driver suggested even we might see ration coupons again before too long. A joke. We think.
Have a good weekend.